Europe Could Hit Microsoft With $7B+ Fine Over New Internet Explorer Antitrust Violations [Updated]

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Looks like the European Commission is following through on what it’s been reportedly planning to do for weeks: it has filed a formal complaint against Microsoft for antitrust violations related to Internet Explorer and giving consumers a clear way to choose another browser when using Microsoft’s Windows operating system. The violation cost cost Microsoft billions in fines — the maximum penalty, the European Commission notes, is 10% of the company’s annual turnover.

Going by fiscal year 2012’s annual revenues of $73 billion, that could mean a fine of $7.3 billion.

The complaint stems from how Microsoft has been implementing browser choice since it was first investigated over the issue years ago. The two sides reached a settlement in 2009 that detailed how Microsoft needed to offer users a clear alternative to Internet Explorer as the default internet browser when using the Windows platform in the future. At the time, Microsoft also got fined over $2 billion for past violations.

But in June of this year, it emerged that Microsoft had in fact violated the agreement: a version of Windows 7 that was distributed and activated 28 million times failed to offer users alternatives to IE.

Microsoft acknowledged the error when it first emerged, admitting that it had “fallen short” of expectations and that it had “deep regret” over the mistake. But at the time, Joaquin Almunia, the current European Competition Commissioner, said: “We take compliance with our [original antitrust] decision very seriously. If the infringement is confirmed, there will be sanctions.”

As we noted the other day, Microsoft now has several weeks to make a response. We have reached out to the company for a comment and will update as we learn more. A spokesperson from Microsoft issued the following response, in line with its earlier admission of wrongdoing:

“We take this matter very seriously and moved quickly to address this problem as soon as we became aware of it. Although this was the result of a technical error, we take responsibility for what happened, and we are strengthening our internal procedures to help ensure something like this cannot happen again. We sincerely apologize for this mistake and will continue to cooperate fully with the Commission.”

In the meantime, it’s pretty bad timing for Microsoft, publicity-wise. The company is launching its new Windows 8 platform in days.

And in any case it is no longer the most dominant Internet browser in Europe. It is now third behind Chrome and Firefox, according to StatCounter. Its Windows operating system remains ahead of the rest of the PC platform pack.

Update: Microsoft has provided the following statement.

After discussions with the Commission, we are changing some aspects of the way the Browser Choice Screen works on Windows 8 and will have those changes implemented when Windows 8 launches later this week.

Press release from the EC below.

Antitrust: Commission sends Statement of Objections to Microsoft on non-compliance with browser choice commitments
The European Commission has informed Microsoft of its preliminary view that Microsoft has failed to comply with its commitments to offer users a choice screen enabling them to easily choose their preferred web browser. In 2009, the Commission had made these commitments legally binding on Microsoft (see IP/09/1941). The sending of a statement of objections does not prejudge the final outcome of the investigation.

In its statement of objections, the Commission takes the preliminary view that Microsoft has failed to roll out the browser choice screen with its Windows 7 Service Pack 1, which was released in February 2011. From February 2011 until July 2012, millions of Windows users in the EU may not have seen the choice screen. Microsoft has acknowledged that the choice screen was not displayed during that period.

In December 2009, the Commission had made legally binding on Microsoft commitments offered by the US software company to address competition concerns related to the tying of Microsoft’s web browser, Internet Explorer, to its dominant client PC operating system Windows (see IP/09/1941, MEMO/09/558 and MEMO/09/559). Specifically, Microsoft committed to make available for five years (i.e. until 2014) in the European Economic Area a “choice screen” enabling users of Windows to choose in an informed and unbiased manner which web browser(s) they wanted to install in addition to, or instead of, Microsoft’s web browser. The choice screen was provided as of March 2010 to European Windows users who have Internet Explorer set as their default web browser.

The Commission had opened proceedings to investigate the potential non-compliance with the browser choice commitments on 16 July 2012 (see IP/12/800).

Background on the commitments decision
In January 2009, the Commission sent Microsoft a Statement of Objections, outlining its preliminary view that the company abused its dominant position in the market for client PC operating systems through the tying of Internet Explorer to Windows (see MEMO/09/15). In order to address the Commission’s concerns, Microsoft offered commitments, including the set-up of a “ballot screen” in the Windows PC operating system, from which consumers could easily choose their preferred internet browser (see MEMO/09/352). In October 2009, the Commission market tested an improved proposal from Microsoft (see MEMO/09/439).

In light of the reactions to the market test, the Commission concluded that the commitments would remedy its competition concerns and made the commitments legally binding on Microsoft in December 2009 (see IP/09/1941, MEMO/09/558 and MEMO/09/559), pursuant to Article 9 of the Antitrust Regulation No 1/2003.

More information about the browser choice commitment is available at: http://ec.europa.eu/competition/consumers/web_browsers_choice_en.html

Procedural background
A statement of objections is a formal step in Commission investigations. The Commission informs the parties concerned in writing of the objections raised against them and the parties can reply in writing and request an oral hearing to present comments.

The Commission takes a final decision only after the parties have exercised their rights of defence.

If a company has breached commitments made legally binding by way of an Article 9 decision, it may be fined up to 10% of its total annual turnover.